Reverting Flys in the RUT

[Steven Place]

RUT has recovered a pretty good chunk of its losses from the Sep-Oct selling, and it’s back above it’s 2nd standard deviation bollinger band. This tends to be a good spot for what I call “reverting butterflies,” which are a kind of income trade that are slightly bearish and use a scaling approach.

Here’s the trade, I’m going to also provide live bid/ask so I can show you a good price for entry:

Long Dec 1180 Put — Bid: 44.90 Ask: 46.60 Mid: 45.75 Good Fill: 45.80
Short 2x Dec 1130 put: Bid: 23.30 Ask: 24.20 Mid: 23.75 Good Fill: 23.70
Long Dec 1080 put: Bid 11.20 Ask: 12.10 Mid: 11.65 Good Fill: 11.70

So the cost of the butterfly is:

45.80 – 23.70 – 23.70 + 11.70 = 10.10

Start with trying to get a fill at 10.00 and then work your way up in dime increments (10.10, 10.20) — you may need to work up to 10.20 to get a fill.

This does have a decent amount of short deltas to start, but since RUT is already overbought (above bollinger bands) then it’s good risk/reward to start here.

Remember– this is a SCALING trade, which means if RUT gets to 1180 we will ADD more capital to the trade. I plan to add 2 more times to this trade.

You can also take a similar trade with smaller size using IWM — the 108/113/118 put butterfly.

[Steven Place]

We are close enough to 1180 (and the option greeks have changed enough) to add here.

Buy to open RUT Dec 1220/1170/1120 for 12.50

One more add at 1200.

[Steven Place]

Nice little dip in the RUT down to the 1160’s.

What I’m going to do here is CLOSE the higher butterfly and REBUY it if the RUT squeezes back higher again.

Sell to close RUT Dec 1110/1160/1210 put butterfly for 17.20.

REBUY the butterfly at 11.00

[Charles]

I may try IWM Dec 110/115/120

[Steven Place]

Going to bail on the original butterfly here. The trade only has 18 calendar days left, which is very short for this kind of trade.

Sell to close RUT Dec 1180/1130/1080 put butterfly for 12.50.

That puts the whole trade at a gain of 34% return based off the maximum risk taken on the trade.

If RUT spikes higher again, I’ll take the same trade but will go use Jan or Feb options.

[Author]

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